EXHIBIT 12.1
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS: APPROVED OR DISAPPROVED OF THE TRANSACTION CONTEMPLATED HEREIN;
PASSED UPON THE MERITS OR FAIRNESS OF THE TRANSACTION; OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
OFFER TO EXCHANGE
TO HOLDERS OF YP.NET, INC. COMMON STOCK
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
APRIL 30, 2002, UNLESS THE OFFER IS EXTENDED.
Tendering Agent
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Continental Stock Transfer & Trust Company
17 Battery Place
New York, New York 10004
March , 2002
To our shareholders:
This letter, and the enclosed Schedule TO, is being sent to you in
connection with an offer by YP.Net, Inc. (the "Company") to exchange shares of
your common stock of the Company (the "Common Stock"), for an equal number of
shares of series E preferred stock ("Series E Preferred Stock"), as more fully
described below and in the Schedule TO. We understand that this material
contains complex issues and we strongly urge you to contact us at 1-800-748-6183
if you have any questions or concerns whatsoever.
SUMMARY TERM SHEET
We are offering to exchange up to 10,000,000 shares of the Company's
outstanding Common Stock for 10,000,000 shares of our Series E Preferred Stock,
subject to certain limitations. This Summary Term Sheet will explain to you,
our shareholders, the important terms of the proposed transaction. This
explanation is designed to assist you in deciding whether to tender your shares
to us. This Summary Term Sheet serves only as an introduction, and we urge you
to carefully read the remainder of this Offer to Exchange and the accompanying
Letter of Transmittal in order to fully educate yourself on the details of the
proposed Offer.
WHO IS OFFERING TO BUY MY SECURITIES?
The Offer to Exchange the Common Stock is being made by the YP Net, Inc.
WHAT IS THE PURPOSE OF THE TENDER OFFER?
We believe that the public trading market for the Common Stock has not
recognized and will not recognize the proper value of the Common Stock because
the number of shares of Common Stock in the public float is too great. We
believe that by reducing the number of shares available for purchase, the value
of those shares may rise.
WHAT ARE THE CLASSES AND AMOUNTS OF SECURITIES SOUGHT IN THE OFFER?
We are offering to exchange up to 10,000,000 shares of our outstanding
Common Stock for 10,000,000 shares of our Series E Preferred Stock. In the event
more than 10,000,000 shares of Common Stock are tendered for exchange, the
exchange will be made a on a pro rata basis which limits the total number of
shares exchanged to 10,000,000. In the event proration is required, all shares
and shareholders will be prorated equally and we will advise you of proration
amounts through a public press release as soon as possible.
ARE THERE ANY CONDITIONS TO THE OFFER?
There are no minimum number of shares which must be exchanged, but there
are certain conditions to the Offer which may arise from specific changes of
circumstances which adversely affect YP.Net or the Offer. In addition, if the
purchase of your Shares would cause us to have less than 300 shareholders of
record, we will not complete the exchange without amending the terms such that
we have at least 300 shareholders of record at the time the exchange is
completed.
HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER IN THE OFFER?
You will have at least until 5:00 PM, New York City time, on April 30, 2002
to decide whether to tender your shares in the Offer.
HOW MANY SHARES WILL THE YP.NET EXCHANGE?
We will exchange up to 10,000,000 shares, subject to proration under
certain circumstances. There are currently 43,813,630 outstanding shares of
Common Stock. Although we are making the Offer available to all holders of
Common Stock, certain majority shareholders, officers and directors, who in
aggregate hold 23,655,500 shares of Common Stock have agreed not to offer their
shares for exchange. Such persons have signed agreements with the YP.Net whereby
they are precluded from selling any of their holdings for a period of two years
after the date of this offering, and are limited to selling 25% of their
holdings per year during the subsequent four years.
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WHAT WILL HAPPEN IF I DO NOT TENDER MY SHARES?
Our Common Stock will continue to trade in the same manner as it has to
date. Even if the maximum 10,000,000 shares of Common Stock are offered and
accepted for exchange, 33,813,630 shares will remain outstanding, of which
10,158,130 will not be subject to any lock-up agreement.
UNDER WHAT CONDITIONS CAN THE YP.NET TERMINATE THE TENDER OFFER?
We can terminate the Offer upon notice to you if certain circumstances
occur, such as a material adverse change in the financial markets or the offer
is becomes subject to government action or litigation. In addition, if the
purchase of your Shares would cause us to have less than 300 shareholders of
record, we will not complete the exchange without amending the terms such that
we have at least 300 shareholders of record at the time the exchange is
completed.
CAN THE OFFER BE EXTENDED AND UNDER WHAT CIRCUMSTANCES?
We are reserving the right to extend the Offer at our discretion, for a
period of up to 30 days. Also, should we, pursuant to the terms and conditions
of the Offer, significantly change the exchange ratio or quantity of shares
asked for in the Offer or otherwise materially amend the Offer we will ensure
that the Offer remains open long enough to comply with Federal securities laws.
It is possible that such changes could involve an extension of the Offer, up to
10 additional business days in some cases.
HOW WILL I BE NOTIFIED IF THE OFFER IS EXTENDED?
If we extend the Offer, we will make a public announcement of the
extension, not later than 9:00 a.m., New York City time, on the next business
day after the day on which the Offer was scheduled to expire.
HOW DO I TENDER MY SHARES?
To tender your shares, you must deliver the certificates evidencing your
shares, together with a completed Letter of Transmittal with any required
signature guarantees or other required documents, to Continental Stock Transfer
& Trust Company, the Tendering Agent for the Offer, not later than the time the
Offer expires.
UNTIL WHAT TIME CAN I WITHDRAW PREVIOUSLY TENDERED SHARES?
You may withdraw previously tendered shares at any time until the Offer has
expired. To withdraw Shares you must deliver a written notice of withdrawal, or
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a facsimile of one, with the required information to the Tendering Agent while
you still have the right to withdraw the shares.
IF I TENDER ALL OF MY SHARES, WILL I BE SUBJECT TO PRORATION?
You may be subject to proration if more than 10,000,000 shares are
submitted for exchange, or if the number of shares tendered for exchange would
cause us to have less than 300 stockholders of record. If more than 10,000,000
shares of Common Stock are offered for exchange, we will only accept the pro
rata amount of shares offered for exchange by such holder relative to the total
number of shares of Common Stock offered for exchange. For example, if you offer
1,000 shares for exchange and a total of 12,000,000 shares are offered by all
stockholders, your offer to exchange will be accepted to the extent of 800
shares (12,000,000 is 20% greater than 10,000,000, so your 1,000 shares will be
reduced by 20% to 800).
WHEN WILL THE YP.NET ISSUE THE SERIES E PREFERRED SHARES FOR THE SHARES I
TENDER?
We will issue the Series E Preferred Stock for the shares we accept
promptly after the expiration of the Offer and our acceptance of the shares.
WHAT DOES OUR BOARD OF DIRECTORS THINK OF THE OFFER?
Our Board of Directors unanimously determined that the terms of the Offer
are fair and in the best interest of our shareholders.
WHAT DOES YP.NET INTEND TO DO WITH THE EXCHANGED SHARES AFTER THE OFFER EXPIRES?
The Common Stock accepted for exchange in the Offer will be cancelled and
returned to the status of authorized, but unissued shares.
WHAT ARE THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IF I TENDER MY
SHARES?
Generally, your new shares of Series E Preferred Stock will have the same
tax basis as your current shares of Common Stock. No income gain or loss will be
recognized by a shareholder on the surrender of the current shares of Common
Stock or receipt of the certificate representing new shares of Series E
Preferred Stock. The tax basis of the shares of Series E Preferred Stock will
equal the tax basis of the shares of Common Stock exchanged therefor. The
exchange of the shares of Common Stock for the new shares of Series E Preferred
Stock will produce no taxable income or gain or loss to the YP.Net.
You should check with your personal tax advisor to determine the specific
state and local tax treatment which applies to you.
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WHAT RISKS DO I FACE IN CONNECTION WITH THE TENDER OFFER?
The risks involved in connection with this exchange, including the
following:
- By exchanging Common Stock for the Series E Preferred Stock, you will
be giving up the voting rights that accompany the Common Stock. This
will further vest control of the Company in those stockholders
retaining Common Stock.
- There will be no immediate public market for the resale of the Series
E Preferred Stock. Accordingly, your sales of such stock will be
restricted to applicable exemptions available under state and federal
securities laws.
- Our acceptance of shares of Common Stock in the offer will reduce the
number of shares that might otherwise trade publicly and may reduce
the number of the our stockholders. This may reduce the volume of
trading in the shares and make it more difficult to buy or sell
significant amounts of shares without affecting the market price,
which could adversely affect continuing stockholders. Nonetheless, we
anticipate that there will still be a sufficient number of shares
outstanding and publicly traded following the offer to ensure a
continued trading market in the shares.
- If we accept less than all of the Shares you tender for exchange, the
transactional costs for maintaining or disposing of your shares may be
increased.
WHO CAN I TALK TO IF I HAVE QUESTIONS ABOUT THE TENDER OFFER?
You can contact us at 1-800-748-6183 if you have any questions or concerns
whatsoever.
NEITHER THE COMPANY NOR THE BOARD MAKES ANY RECOMMENDATION AS TO WHETHER ANY
SHAREHOLDER SHOULD TENDER ANY OF OR ALL SUCH SHAREHOLDER'S SHARES PURSUANT TO
THE OFFER. EACH SHAREHOLDER MUST MAKE SUCH SHAREHOLDER'S OWN DECISION WHETHER TO
TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
DESCRIPTION OF THE OFFER
This statement relates to our offer to exchange up to 10,000,000 shares of
the Company's outstanding Common Stock for 10,000,000 shares of our Series E
Preferred Stock. In the event more than 10,000,000 shares of Common Stock are
tendered for exchange, the exchange will be made a on a pro rata basis which
limits the total number of shares exchanged to 10,000,000. In addition, in the
event the number of record holders of our Common Stock would be reduced below
300 as a result of the exchange, shareholders will only be permitted to exchange
90% of the shares which they own. The election period for the holders of the
Common Stock expires on April 30, 2002, which the Company has the sole
discretion to extend for an additional 30 days ("Election Period").
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We previously offered to exchange shares of series C preferred stock and
series D preferred stock for all outstanding shares of Common Stock, except for
shares of Common Stock subject to lock-up agreements. By delivery of this Offer
to Exchange, we herby rescind such offer and replace it with the offer to
exchange for shares of our Series E Preferred Stock.
The Common Stock that is the subject of this tender offer constitutes all
of the Common Stock that is issued and outstanding, limited to 10,000,000
shares. However, certain majority shareholders, officers and directors, who in
aggregate hold 23,655,500 shares of Common Stock have signed agreements with the
Company whereby they are precluded from selling any of their holdings for a
period of two years after the date of this Offer, and are limited to selling 25%
of their holdings per year during the subsequent four years. As a result of the
agreements of these shareholders, the Company will save the value of all
dividends which would otherwise be paid had such shareholders exchanged their
Common Stock for Series E Preferred Stock.
Each shareholder, in their sole discretion, may determine the number of
shares of Common Stock to offer for exchange. If more than 10,000,000 shares of
Common Stock are offered for exchange, the Company will only accept the pro rata
amount of shares offered for exchange by such holder to the total number of
shares of Common Stock offered for exchange. For example, if you offer 1,000
shares for exchange and a total of 12,000,000 shares are offered by all
stockholders, your offer to exchange will be accepted to the extent of 800
shares (12,000,000 is 20% greater than 10,000,000, so your 1,000 shares will be
reduced by 20% to 800).
DESCRIPTION OF SERIES E PREFERRED STOCK
Series E Preferred Stock, is entitled to receive dividends at a rate of 5%
per annum based upon the stated liquidation preference of $.30 per share ($0.015
per share per annum). From and after two years from the initial issuance of the
series E preferred stock until three years thereafter, you shall have the right
to convert all or portions of your series E preferred stock into shares of
Common Stock, at a rate of one for one, together with the payment by the holder
of $0.45 per converted share.
Upon the sale of substantially all of the stock or assets of the Company in
a non-public transaction or dissolution, liquidation, or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Series E
Preferred Stock Stock shall be entitled to receive out of the assets of the
Company, before any distribution or payment is made upon the Common Stock or any
other series of Preferred Stock, an amount in cash equal to $.30 per share, plus
any accrued but unpaid dividends. The holders of the Series E Preferred Stock
shall have no voting rights, except as required by law.
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TERMS OF THE TENDER OFFER
The offer is not conditioned on any number of shares of Common Stock being
offered for exchange, but the offer is subject to a number of other conditions.
See "Certain Conditions to the Offer."
In compliance with Rule 13E-4 of the Securities Exchange Act of 1934, as
amended, the Company, is offering to the holders of its common stock, par value
$.001 (the "Common Stock") the option to exchange one or more shares their
Common Stock for an equal amount of shares of Series E Preferred Stock. We are
offering to exchange up to 10,000,000 shares of Common Stock for shares of
Series E Preferred Stock. In the event more than 10,000,000 shares of Common
Stock are tendered for exchange, the exchange will be made a on a pro rata basis
which limits the total number of shares exchanged to 10,000,000. In addition, in
the event the number of record holders of our Common Stock would be reduced
below 300 as a result of the exchange, shareholders will only be permitted to
exchange 90% of the shares which they own. The Company will pay all charges and
expenses of Continental Stock Transfer & Trust Company, as Tendering Agent in
connection with the Offer.
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), the Company will accept for exchange, and will exchange for
Series E Preferred Stock, all Shares validly tendered, subject to the prescribed
limitations, as soon as practicable after the Expiration Date.
Subject to applicable rules of the SEC, the Company expressly reserves the
right to delay acceptance of delivery, or delivery for, shares in order to
comply in whole or in part with any other applicable law. In all cases, exchange
for shares tendered and accepted pursuant to the Offer will be made only after
timely receipt by the Tendering Agent of (i) the certificates representing the
shares, (ii) the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, with any required signature guarantees, and (iii)
any other documents required by the Letter of Transmittal. For purposes of the
Offer, the Company will be deemed to have accepted for tender, and thereby
exchanged, shares validly tendered and not properly withdrawn as, if and when
the Company gives oral or written notice to the Tendering Agent, as agent for
the tendering shareholders, of the Company's acceptance for payment of such
shares pursuant to the Offer. Upon the terms and subject to the conditions of
the Offer, delivery of shares of Series E Preferred Stock for shares accepted
for exchange pursuant to the Offer will be made by delivery of shares of Series
E Preferred Stock with the Tendering Agent, which will act as agent for
tendering shareholders for the purpose of receiving exchanges from the Company
and transmitting such shares to tendering shareholders whose Shares have been
accepted for payment. If any tendered shares of Common Stock are not accepted
for payment for any reason pursuant to the terms and conditions of the Offer, or
if certificates are submitted evidencing more shares than are tendered,
certificates evidencing unexchanged shares will be returned, without expense to
the tendering shareholder
PROCEDURES FOR TENDERING SHARES.
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Except as set forth below, in order for Shares to be validly tendered
pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, together with any required signatures and
any other documents required by the Letter of Transmittal, must be received by
the Tendering Agent at its address set forth in this Offer to Exchange and the
certificates evidencing tendered shares must be received by the Tendering Agent
at such address.
Tendering Agent
---------------
Continental Stock Transfer & Trust Company
17 Battery Place
New York, New York 10004
THE METHOD OF DELIVERY OF CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, IS AT
THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE TENDERING AGENT. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
DETERMINATION OF VALIDITY.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of shares will be determined
by the Company in its sole discretion, which determination shall be final and
binding on all parties. The Company reserves the absolute right to reject any
and all tenders determined by it not to be in proper form or the acceptance for
payment of which may, in the opinion of its counsel, be unlawful. The Company
also reserves the absolute right to waive any condition of the Offer or any
defect or irregularity in the tender of any particular shares or any particular
shareholder, whether or not similar defects or irregularities are waived in the
case of other shareholders, and the Company's interpretation of the terms and
conditions of the Offer will be final and binding on all persons. No tender of
Shares will be deemed to have been validly made until all defects and
irregularities have been cured or waived to the satisfaction of the Company.
Neither the Company, nor any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
WITHDRAWAL RIGHTS.
Tenders of the shares made pursuant to the Offer are irrevocable except
that such shares may be withdrawn at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Company pursuant to the Offer,
may also be withdrawn at any time after April 30, 2002. If the Company extends
the Offer, is delayed in its acceptance for payment of shares or is unable to
accept Shares for payment pursuant to the Offer for any reason, then, without
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prejudice to the Company's rights under the Offer, the Tendering Agent may,
nevertheless, on behalf of the Company, retain tendered shares, and such shares
may not be withdrawn except to the extent that tendering shareholders are
entitled to withdrawal rights as described in this section. For a withdrawal to
be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Tendering Agent at its address set
forth in this Offer to Exchange. Any such notice of withdrawal must specify the
name of the person who tendered the shares to be withdrawn, the number of shares
to be withdrawn and the name of the registered holder of such shares, if
different from that of the person who tendered such shares. Withdrawals of
tenders of shares may not be rescinded, and shares properly withdrawn will
thereafter be deemed not validly tendered for purposes of the Offer. However,
withdrawn shares may be tendered by again following the procedures described
above. All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Company, in its sole
discretion, whose determination will be final and binding. None of the Company,
the Tendering Agent or any other person will be under duty to give notification
of any defects or irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification.
PRORATION
If proration of tendered shares is required, we will determine the final
proration factor as promptly as practicable after the expiration date of the
Offer. Proration for each stockholder tendering shares will be based on the
ratio of the number of shares properly tendered and not properly withdrawn by
the stockholder to the total number of shares tendered by all stockholders. This
ratio will be applied to stockholders tendering shares to determine the number
of shares that will be purchased from each tendering stockholder in our offer.
Also, we will choose a number of shares that, if all stockholders holding less
than that number of shares tender their shares in our offer, would not reduce
the number of stockholders to the point that our common stock would be subject
to deregistration under the Securities Exchange Act of 1934. Because of the
potential difficulty in determining the number of shares properly tendered and
not properly withdrawn, we do not expect that we will be able to announce the
final proration percentage or commence delivery for any shares accepted under
our offer until seven to ten business days after the expiration date. The
preliminary results of any proration will be announced by press release as soon
as practicable after the Expiration Date. In addition, the specific proration
amounts for each stockholder will be disclosed to that stockholder at the time
of delivery of the shares of Series E Preferred Stock.
PURPOSE, ALTERNATIVES, REASONS AND EFFECTS.
The purpose of this tender offer is to retire up to 10,000,000 shares of
outstanding Common Stock in order to reduce the public float. Certain majority
shareholders, officers and directors, who in aggregate hold 23,655,500 shares of
Common Stock, have agreed not to exchange pursuant to lock-up agreements with
the Company. The Company is offering the remaining holders of its Common Stock,
the option to exchange one or more shares of their Common Stock for an equal
amount of shares of Series E Preferred Stock The Company believes that by
reducing the amount of its Common Stock outstanding, the price of the Common
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Stock will be positively affected. The Company did not consider alternative
methods of affecting its stock price.
FAIRNESS.
The Company reasonably believes that this transaction is fair to the
unaffiliated security holders. The Company believes that this transaction is
fair because while no public market will be available to the holders of the
Series E Preferred Stock, the Series E Preferred Stock contains substantial
dividend and liquidation rights. If the holders of the Series E Preferred Stock
choose to, they may convert these shares back to Common Stock after two years
and for a period of five years from issuance. This affords the holder the right
to enjoy dividends it may otherwise not be entitled to receive and elect to
exchange for the Common Stock in the near future.
The Company is not requiring the approval of any security holders to
complete this transaction. This transaction was approved by a majority of the
directors who are not employees of the Company, and no unaffiliated
representative has been retained by the Company.
There are no appraisal rights available to the Holders of our Common Stock
with respect to this transaction.
REPORTS, OPINIONS AND APPRAISALS.
No report, opinion or appraisal was received by the Company with regard to
the Offer or the value of the Series E Preferred Stock.
TERM
The election period for this offering expires on April 30, 2002 (the
"Expiration Date"), which date may be extended up to an additional 30 days by
the Company at its sole discretion and in compliance with applicable securities
laws. The class of Common Stock that is the subject of this tender offer
constitutes 10,000,000 shares of the Company's Common Stock, par value $.001
that are issued and outstanding. In the event more than 10,000,000 shares of
Common Stock are tendered for exchange, the exchange will be made a on a pro
rata basis which limits the total number of shares exchanged to 10,000,000. See
"Proration."
Each Common Stock holder must tender the certificates for their Common
Stock, which will be held in escrow until the Expiration Date, or any extension
thereof.
RISKS
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There are certain risks involved in participating in this exchange,
including the following:
- By exchanging Common Stock for the Series E Preferred Stock, the
holder will be giving up the voting rights that accompany the Common
Stock. This will further vest control of the Company in those
stockholders retaining Common Stock.
- There will be no immediate public market for the resale of the Series
E Preferred Stock. Accordingly, sales of such stock will be restricted
to applicable exemptions available under state and federal securities
laws.
- The Company's acceptance of shares of Common Stock in the offer will
reduce the number of shares that might otherwise trade publicly and
may reduce the number of the Company's stockholders. This may reduce
the volume of trading in the shares and make it more difficult to buy
or sell significant amounts of shares without affecting the market
price, which could adversely affect continuing stockholders.
Nonetheless, the Company anticipates that there will still be a
sufficient number of shares outstanding and publicly traded following
the offer to ensure a continued trading market in the shares.
- If we accept less than all of the Shares you tender for exchange, the
transactional costs for maintaining or disposing of your shares may be
increased.
CERTAIN CONDITIONS TO THE OFFER.
Notwithstanding any other provision of the Offer, and in addition to (and
not in limitation of) the Company's right to extend, amend or terminate the
Offer as set forth herein, the Company shall not be required to accept for
exchange shares tendered, or may postpone the acceptance for exchange of the
Shares tendered, subject to Rule 13e-4(f) promulgated under the Exchange Act,
if, prior to the Expiration Date, any of the following shall have in the
reasonable judgment of the Company occurred (or shall have been reasonably
determined by the Company to have occurred):
(a) the completion of the Offer would result the Company having less than
300 Common Stockholders of record. In such event, the Company may terminate the
Offer or seek to amend the terms such that the number of Common Stockholders
would not be reduced below 300. In the event of any such amendment of the terms,
the Company would be required to notify you of any such amended terms and you
would have the right to accept such new terms or withdraw from the Offer;
(b) there shall have been threatened, instituted or pending any action or
proceeding by any government or governmental, regulatory or administrative
agency or authority or tribunal or any other person, domestic or foreign, before
any court or governmental, regulatory or administrative authority, agency or
tribunal, domestic or foreign, that (i) challenges the making of the Offer or
the acquisition of shares pursuant to the Offer, or otherwise, directly or
indirectly, relates in any manner to the Offer; or (ii) in the reasonable good
faith judgment of the Company, could materially affect the business, condition
(financial or otherwise), income, assets, operations or prospects of the Company
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and its subsidiaries, or otherwise materially impair in any way the contemplated
future conduct of the business of the Company or any of its subsidiaries or
materially impair the Offer's contemplated benefits to the Company;
(c) if there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered, amended,
enforced or deemed to be applicable to the Offer or the Company or any of its
subsidiaries, by any court or any government or governmental, regulatory or
administrative authority, agency or tribunal, domestic or foreign, that, in the
Company's reasonable good faith judgment, would or might directly or indirectly
(i) make the acceptance for exchange of some or all the shares illegal or
otherwise restrict or prohibit consummation of the Offer; (ii) delay or restrict
the ability of the Company, or render the Company unable, to accept for exchange
some or all the shares; (iii) materially impair the contemplated benefits of the
Offer to the Company; or (iv) materially adversely affect the business,
condition (financial or otherwise), income, assets, operations or prospects of
the Company and its subsidiaries or otherwise materially impair in any way the
contemplated future conduct of the business of the Company or any of its
subsidiaries;
(d) if there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any United States national securities
exchange or in the over-the-counter market (excluding any coordinated trading
halt triggered solely as a result of a specified decrease in a market index),
including but not limited to any changes in trading conditions resulting from
actual or threatened terrorist attacks, responses by the United States or its
allies, or the effects thereof; (ii) the declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States as to such
acts; (iii) the commencement of a war, armed hostilities or other international
or national crisis directly or indirectly involving the United States or any of
its territories, including, without limitation, any acts of terrorism, domestic
or foreign, or responses of the United States or its allies to such acts; (iv)
any limitation (whether or not mandatory) by any governmental, regulatory or
administrative agency or authority on, or any event that, in the reasonable good
faith judgment of the Company, might affect, the extension of credit by banks or
other lending institutions in the United States; (v) any change in the general
political, market, economic or financial conditions in the United States or
abroad that could, in the reasonable good faith judgment of the Company, have a
material adverse effect on the business, condition (financial or otherwise),
income, assets, operations or prospects of the Company and its subsidiaries,
taken as a whole, or the trading in the shares of Common Stock; (vi) in the case
of any of the foregoing existing at the time of the commencement of the Offer,
in the reasonable good faith judgment of the Company, a material escalation,
acceleration or worsening thereof; or (vii) any decline in either the Dow Jones
Industrial Average or the Standard and Poor's Index of 500 Industrial Companies
by an amount in excess of 20% measured from the close of business on March 1,
2002; or
(e) if any actual or potential adverse change or development shall occur or
be threatened or be anticipated by the Company with respect to the business,
condition (financial or otherwise), income, assets, operations or prospects of
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the Company and its subsidiaries that, in the reasonable judgment of the
Company, is or may be material to the Company or affects the anticipated
benefits to the Company of the Offer.
The foregoing conditions are for the benefit of the Company and may be
asserted regardless of the circumstances giving rise to any such condition and,
except as set forth in the next sentence, any such condition may be waived by
the Company, in whole or in part, at any time and from time to time in such
party's sole and reasonable discretion. In certain cases, waiver of a condition
to the Offer would require an extension of the Offer. Any party's failure at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right; the waiver of any such right with respect to particular facts and
circumstances shall not be deemed a waiver with respect to any other facts or
circumstances; and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time prior to the Expiration Date. Any
determination by the applicable party concerning the events described above and
any related judgment by the applicable party regarding the inadvisability of
proceeding with the acceptance for payment or payment for any tendered shares
will be final and binding on all parties.
TAX CONSEQUENCES
The Company believes that the Federal income tax consequences of the
exchange offer to holders of Common Stock will be as follows:
(i) No income gain or loss will be recognized by a
shareholder on the surrender of the current shares or
receipt of the certificate representing new shares of
Series E Preferred Stock.
(ii) The tax basis of the shares of Series E Preferred Stock
will equal the tax basis of the shares of Common Stock
exchanged therefor.
(iii) The holding period of the new shares of Series E
Preferred will include the holding period of the shares
of Common Stock if such shares were held as capital
assets.
(iv) The exchange of the shares of Common Stock for the new
shares of Series E Preferred Stock will produce no
taxable income or gain or loss to the Company.
The Company's opinion is not binding upon the Internal Revenue Service or
the courts, and there can be no assurance that the Internal Revenue Service or
the courts will accept the positions expressed above.
13
The state and local tax consequences of the exchange offer may vary
significantly as to each shareholder, depending upon the state in which he/she
resides. Shareholders are urged to consult their own tax advisors with respect
to the Federal, State and local tax consequences of the exchange.
MARKET PRICE OF COMMON STOCK
The Common Stock has been traded on the OTC Bulletin Board since January 28,
2002. Prior thereto, the Common Stock has been traded on the "Pink Sheets."
The high and low bids for the last two years are as follows:
High Bid Low Bid
2000
First Quarter (January 1, 2000 to March 31, 2000) $ 0.52 $ 0.25
Second Quarter (April 1, 2000 to June 30, 2000) $ 0.35 $ 0.30
Third Quarter (July 1, 2000 to September 30, 2000) $ 0.50 $ 0.32
Fourth Quarter (October 1, 2000 to December 31, 2000) $ 0.43 $ 0.18
2001
First Quarter (January 1, 2001 to March 31, 2001) $ 0.30 $ 0.17
Second Quarter (April 1, 2001 to June 30, 2001) $ 0.25 $ 0.15
Third Quarter (July 1, 2001 to September 30, 2001) $ 0.026 $ 0.059
Fourth Quarter (October 1, 2001 to December 31, 2001) $ 0.319 $ 0.069
IDENTITY AND BACKGROUND OF FILING PERSON
YP.NET, INC., 4840 East Jasmine Street, Suite 105, Mesa, Arizona 85205.
The business number is (480) 654-9646. YP.NET, INC.'s officers and directors,
who can be reached through the YP.NET, INC. at the aforementioned business
address and telephone number, are as follows:
- Angelo Tullo, Chairman of the Board, Director, Chief Executive Officer
and President
- Walter Vogel, Director, Vice Chairman of the Board
- Gregory B. Crane, Director
- Daniel L. Coury, Sr., Director
- Harold A. Roberts, Director
- DeVal Johnson, Director
- Donald Reese, Director of Operations
- Pamela J. Thompson, CPA, Chief Financial Officer, Treasurer, Secretary
The Company also has two controlling shareholders, each of which are
controlled by Ilse Cooper. Matthew & Markson Ltd. owns approximately 27% of our
outstanding Common Stock and Morris & Miller Ltd. owns approximately 23% of our
outstanding Common Stock.
14
SECURITIES OWNERSHIP
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF OWNERSHIP OF CLASS(1)
--------------------------- ----------------- -----------
Angelo Tullo 300,000 *
4840 East Jasmine Street
Suite 105
Mesa, AZ 85205
Walter Vogel 195,000 *
4840 East Jasmine Street
Suite 105
Mesa, AZ 85205
Gregory B. Crane 75,500 *
4840 East Jasmine Street
Suite 105
Mesa, AZ 85205
Daniel L. Coury, Sr. 180,000 *
4840 East Jasmine Street
Suite 105
Mesa, AZ 85205
Harold A. Roberts 258,000 *
P.O. Box 101
Santa Fe, NM 87504
Pamela Thompson 108,225 *
4840 East Jasmine Street
Suite 105
Mesa, AZ 85205
DeVal Johnson 125,000 *
4840 East Jasmine Street
Suite 105
Mesa, AZ 85205
Matthew & Markson Ltd. (2) 11,600,000 27%
Woods Centre, Frair's Road
P.O. Box 1407
St. John's
Antigua, West Indies
15
Morris & Miller Ltd. 9,325,000 23%
Woods Centre, Frair's Road
P.O. Box 1407
St. John's
Antigua, West Indies
* Represents less than one percent (1%) of our issued and outstanding common
stock.
(1) Based on 43,813,680 shares outstanding as of December 15, 2001. This
amount excludes 4,500,000 shares issued and held as collateral for obligations
of YP.Net under two promissory notes. Upon payment of the notes, the shares
will be returned to YP.Net.
(2) The number of shares held by Matthew & Markson, Ltd. excludes 2,000,000
shares issued as collateral for a note payable issued by YP.Net. These shares
will be returned to YP.Net upon payment of the note.
Based upon the Company's records and upon information provided to the
Company by its directors and executive officers, neither the Company nor any of
its subsidiaries nor, to the best of the Company's knowledge, any of the
directors or executive officers of the Company, nor any associates of any of the
foregoing, has effected any transactions in the Shares during the sixty days
prior to the date hereof.
Incorporated by reference are the financial statements that are included in
the Company's Annual Report on form 10-KSB for the fiscal year ended September
30, 2001, and all amendments thereto, and the Quarterly Reports on Form 10-QSB
for the period ended December 31, 2001.
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SUMMARY FINANCIAL DATA
The following summary financial data set forth below has been derived from
our audited financial statements contained in our Form 10-KSB for the fiscal
year ended September 30, 2001, and the three months ended December 31, 2001, and
is incorporated by reference therefrom.
Year Ended Three Months Ended
September 30 December 31,
------------------------- --------------------------
2001 2000 2001 2000
----------- ------------ ------------ ------------
STATEMENTS OF OPERATIONS DATA:
Revenues . . . . . . . . . . . . . . $15,084,917 $15,836,422 $ 2,992,993 $ 4,526,623
Cost of goods sold . . . . . . . . . 6,399,367 5,234,906 1,184,277 2,886,352
----------- ------------ ------------ ------------
Gross profit . . . . . . . . . . . . 8,685,550 10,601,516 1,808,716 1,640,271
Depreciation and amortization. . . . 603,426 616,660 148,379 145,913
Selling, general and administrative
expenses. . . . . . . . . . . . 6,009,058 7,011,973 909,680 578,702
----------- ------------ ------------ ------------
Income (loss) from operations. . . . 2,073,066 2,972,883 750,657 915,656
Other income (expenses), net . . . . 969,662 (770,113) (24,123) (159,249)
----------- ------------ ------------ ------------
Income (loss) before income taxes. . 3,042,728 2,202,770 726,534 756,407
Income Tax Provision (Benefit) . . . 1,230,447 (645,207) 420,185 -0-
----------- ------------ ------------ ------------
Net income (loss). . . . . . . . . . $ 1,812,281 $ 2,847,977 $ 306,349 $ 756,407
=========== ============ ============ ============
Basic and diluted income
per share $ .04 $ 0.07 $ 0.01 $ 0.02
=========== ========================================
Basic and diluted weighted average
number of common shares
outstanding. . . . . . . . . . . . 40,623,126 40,120,829 43,813,680 40,643,742
As of As of
September 30, December 31,
2001 2001
-------------- -------------
BALANCE SHEETS DATA:
Cash and cash equivalents . . . . . . . . . . . . $ 683,847 $ 334,365
Working capital . . . . . . . . . . . . . . . . . $ 1,680,074 $ 2,096,675
Total assets. . . . . . . . . . . . . . . . . . . $ 8,628,338 $ 8,482,156
Long-term obligations, less current portion . . . $ 410,669 $ 516,941
Shareholders' equity (deficit). . . . . . . . . . $ 5,698,538 $ 5,991,386
MISCELLANEOUS
The Offer is being made to all holders of shares of Common Stock. The
Company is not aware of any jurisdiction where the making of the Offer is
prohibited by administrative or judicial action pursuant to any valid state
statute. If the Company becomes aware of any valid state statute prohibiting the
making of the Offer or the acceptance of Shares pursuant thereto, the Company
will make a good faith effort to comply with any such state statute or seek to
17
have such statute declared inapplicable to the Offer. If, after such good faith
effort, the Company cannot comply with any such state statute, the Offer will
not be made to (nor will tenders be accepted from or on behalf of) the holders
of shares in such state. In any jurisdiction where the securities, blue sky or
other laws require the Offer to be made by a licensed broker or dealer, the
Offer will be deemed to be made on behalf of the Company by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE COMPANY NOT CONTAINED IN THIS OFFER TO EXCHANGE
OR IN THE RELATED LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Company has filed with the SEC a Tender Offer Statement on Schedule TO,
together with all exhibits thereto, pursuant to Regulation M-A under the
Exchange Act, furnishing certain additional information with respect to the
Offer. Such Schedule and any amendments thereto, including exhibits, may be
inspected and copies may be obtained from the offices of the SEC.
18